(Debtwire) Intralot restructuring deal drags on, as talks with 2024s stale
12 February 2021 | 17:45 GMT
The implementation of Intralot’s restructuring is dragging along as the Greek gaming company is yet to provide visibility on how it will push the deal through after its preferred avenue, an out-of-court distressed exchange, failed to reach the 90% required consent threshold, three sources familiar with the matter said. In the meantime, negotiations with an ad hoc group of 2024 bondholders who were pushing back on the proposal haven’t led to an agreement yet, the first and an additional source familiar added.
Under the lock-up agreement entered by the company on 14 January with an ad hoc group holding in excess of 75% of its 2021 notes and over 13% of its 2024 notes, the 2021 holders will exchange EUR 250m of their claims into EUR 205m of new senior secured notes due 2025, to be issued by US-based entity Intralot Inc. Intralot also proposed holders of its existing 2024 notes to exchange their outstanding bonds for up to 49% of the share capital of a yet-to-be-established Dutch NewCo, which will be a direct subsidiary of Intralot Global Holdings and indirect parent of US entity Intralot Inc. In total, around 36% to 37% of the 2024 notes would be converted into 49% equity of the Dutch-based entity, as reported. The 2021 ad hoc group will convert its EUR 68m of holdings in the 2024 notes into 18.7% of the NewCo’s share.
The ad hoc group of the 2024 notes has a 10% plus holding in the 2021 notes, meaning it could block the exchange, as reported.
As of 2 February, 82.62% of the 2021 noteholders had accessed the lock-up agreement before the expiration time. However, the company remained confident it could implement the transaction through an out-of-court process.
“People don’t know how the company will implement this deal,” commented the first source. “Different theories are going around, but nothing official has come from Intralot.”
One of the avenues being aired in the market is the repayment of the 2021 holdouts at par, said the second, third, and fourth sources, and a fifth source familiar. If the company were to fully repay the 2021 holdouts at this stage, the amount needed would be around EUR 43.5m, according to Debtwire calculations.
While this is a possibility, it would certainly not be the preferred choice, given that the company would have to put aside a good-sized chunk of cash for the purpose, the second and third sources warned.
However, with USD 21m of cash coming from the disposal of its 20% stake in Intralot de Peru to Nexus group, the company has some manoeuvring room, given that these proceeds alone could repay half of it, the second source continued.
As the 2024 ad hoc group holds just north of 10% of the 2021 notes, the consent achieved as of early February means that a number of smaller 2021 investors didn’t sign up to the lock-up agreement, which is surprising given it is a really good deal for the 2021s, noted Sarria, an independent special situations firm. These holders could give consent at a later stage, but even with them on board, the company will probably fail to reach the 90% threshold, Sarria added.
Intralot must implement its restructuring transaction before September, when its notes come due, but does not face other impending deadlines, according to the sources.
On 15 March, the company is due to pay a chunky combined coupon of c.EUR 21.5m for its 2021 and 2024 notes, but has a comfortable cash buffer to meet it, the first and second sources said.
Taking to the court
The alternative to an out-of-court implementation is a UK Scheme of Arrangement, said the company in its latest update.
The gaming operator could opt for a Scheme concerning just its 2021 notes, keeping the 2024s out of court. However, the 2024 bondholders and their advisors reckon that this would trigger an event of default under the 2024 bond indenture, as reported.
In the absence of further negotiations between Intralot and 2024 noteholders, there are significant risks of litigation being brought forward by the 2024 noteholders, also as reported.
“There are many legal avenues the 2024 bondholders [and their advisors] could take,” the second source commented.
The 2024 ad hoc group also argued Intralot does not have the basket capacity to issue the new notes under its current bond terms, as reported.
In fact, the liens covenant on Intralot’s 2021 and 2024 bonds permits credit-facility basket debt, general debt basket and ratio debt to be secured subject to a cap of up to EUR 100m and 8% of total assets, according to Xtract Research, a sister publication of Debtwire.
The basket capacity issue could be solved by hiving down the US entity outside of the restricted group, the fourth and a sixth source familiar with the matter said.
However, that could trigger a change of control under the 2024 bond terms, the two sources continued. In the 2024 Offer Memorandum, the definition of change of control includes the disposal of “all or substantially all” assets. If the clause is triggered, then the 2024 notes become callable at 101.
Given that the US entity is currently the part of the group that generates the great majority of the Intralot’s cash and EBITDA, 2024 bondholders would likely contest such a move in court, the second and sixth sources said.
“It would be a bit of a stretch,” pointed out the sixth source. “It has never been done in Europe and it was tried with Olympic Entertainment and didn’t go down very well.”
“Litigation would be bad for the company,” added the second source. “This business is all about government contracts.”
The company is assisted by Evercore and Allen & Overy, while the ad hoc group of 2021 noteholders is advised by Houlihan Lokey and Milbank. The 2024 ad hoc group is working with advisors PJT Partners and Dechert, as earlier reported. Holders of the 2024 notes previously included Gramercy, Chenavari and Serengeti. Alchemy, which used to hold the 2024 bonds, has sold out of its position, as reported.
Intralot could not be reached for comment.
by Giulia Morpurgo and Jou Yu